Essays on financial development and corporate resilience to crises

Abstract

This paper consists of three empirical studies on financial development and corporate crisis resilience. The first study examines the legacy of property rights institutions and their subsequent influences on both household and corporate finance. I argue that the formation of property rights institutions can be traced back to the Neolithic transformation, when hunter-gatherers became the first farmers, and that agricultural endowments positively influence financial activities today. My results show that an early Neolithic transformation predicts better financial development and property rights institutions of global countries, less financial constraints for firms, and easier access to finance for households. Consistent with the financial constraint alleviation argument, my examination of the firm sample shows that early transformation reduces investment sensitivity to cash flows and reduces cash holdings. My results based on ethnicity level data provide evidence on how the Neolithic transition influenced the formation of property rights norms in the pre-industrial period, which helps to explain the persistence of development. The second study examines the influences of historical social capital accumulation and firm resilience to crises. Weather-related social capital reduces financial barriers for firms and increases firm resilience to crises through more accessible finance. The results show that pre-industrial weather uncertainty provided firms with fewer financial obstacles, especially in areas with more incentives or advantages to cooperate historically to insure against weather risks. Long-term weather risks have positive effects on firm survival and recovery from systemic banking crises and COVID-19 crises, because this higher level of social capital can alleviate firms' financial constraints by enabling more credit from banks and supply chains. I test the accumulation of social capital as an influence channel by showing the links between temperature volatility and cooperation in 1500 AD and social trust today. The third study examines gender differences in the operation of firms during the COVID-19 pandemic and assesses the effectiveness of mitigation strategies. I document that firms with more than 50% female employees are 2.1% more likely to be permanently closed than others, and suffer greater reductions in the number of employees, hours of operation, and sales. Female-dominated firms rely mainly on government subsidies as a source of financing compared to other forms of financing, and are indeed 3.5% more likely to receive government support than other firms. Both firm-specific conditions and country-specific factors explain the difference. Drawing on the theory of corporate governance institutions (CGIs), I examine the role of a female-friendly policy environment in supporting at-risk firms and find that such a policy environment makes female-dominated firms more optimistic about recovering from the crisis.